DX Services PLC – Interim Results
DX Services plc is the UK’s leading independent provider of early morning, next day mail and parcels services. The group delivers over one million items each day and operates a UK wide, end-to-end network including collection, sortation and final mile delivery.
Financial highlights
* revenue was similar to last year at £64.6 million (2004: £66.8 million)
* operating profit before senior management transition costs of £0.8
million was £12.7 million (2004: £15.6 million)
* net cash generated by operations was £14.1 million (2004: £20.1 million)
* net debt was £70.0 million at the period end, after funding a share buy
back of £9.4 million
* basic EPS 8.3 pence (2004: 8.8 pence); adjusted EPS before non-recurring
costs 8.9 pence (2004: 10.7 pence)
* interim dividend will be 4.2p per share – an increase of 5%
Business highlights
* maintained revenues by consolidating high street business and winning
new parcels customers
* built service network strategy
* introduced new service centre operating model across network to increase
productivity
* launched first major DX advertising campaign in and around London
* rigorous cost control
Strategy
* Profitable revenue growth through redefined and reduced product
offering, which is aligned to the existing network.
* Roll out blue box network, focused on next day delivery with New Mail
and Document Exchange to merge
Paul Kehoe, Chief Executive, commented:
“We have an excellent platform in the ‘blue box network’, built around the existing Document Exchange. This allows us to be the best quality low-cost carrier of next day mail across the UK. To achieve our goals we have today brought forward proposals which will ensure that we control our cost base, reward our staff, create wealth for our shareholders and grow a sound and profitable business focused around our customers”.
Contacts:
Paul Kehoe, Chief Executive, DX Services plc 01753 630630
Peter Western, Acting Finance Director, DX Services plc 01753 630630
Jon Coles / Rupert Young, Brunswick 020 7404 5959
Analysts’ presentation
There will be a presentation to analysts and investors at UBS, 1 Finsbury Avenue, London EC2M 2PP at 09.00 on Tuesday 7 March 2005. Audio will be provided through a dial-in facility (listen only mode) by dialling +44 (0) 1452 561 263.
The audio will be recorded and available for ten days on 01452 550 000 (+44 1452 550 000 from outside the UK), access number 5759677£. The presentation will also be available via the Investors section of the group’s website at www.thedx.co.uk.
Interim report
The 2005 interim report will be posted to shareholders on 23 March 2006 and may also be accessed from that date via the Investors section of the group’s website at www.thedx.co.uk.
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INTERIM REPORT AND RESULTS
Operating review
DX is a next day delivery operation comprising of three services; the Document Exchange, parcels and a regulated mail service.
The Document Exchange
The Document Exchange continued to give an excellent service to its members. It provided a stable and secure cash flow from revenue of £41.0 million (2004:
£42.9 million), being 63.5% (2004: 64.2%) of the Group’s total. Whilst benefiting from the price increase introduced in April 2005, DX has felt the effects of operational changes in the financial services sector and some cyclical impact from the housing market. In addition DX has suffered from member losses since the demerger for a variety of reasons including lack of focus on the Document Exchange. This is now being addressed operationally and strategically and a number of customers have returned to DX.
Supplementary charges have remained at broadly the same proportion of total Document Exchange revenue as last year (8.5%).
Parcels
Parcels represented 32.8% of group revenue (2004: 31.9%), at £21.2 million
(2004: £21.3 million). £2.1 million of this was generated from new customers won during the period, which has helped to offset an overall reduction in volumes from existing customers due to general market conditions.
Mail
Mail represents 3.7% of group revenue (2004: 3.9%) at £2.4 million (2004: £2.6 million). The annualised run rate for Mail at 31 December 2005 was maintained at around £5.0 million.
DX launched its first major advertising and marketing campaign in London in November and December 2005. This resulted in unprompted brand awareness rising from seven to twelve percent. The campaign has generated nearly two thousand leads to date.
Financial review
The results for the six months to 31 December 2005 have been presented in accordance with IFRS, and the comparative amounts have been restated accordingly.
Operating profit (before senior management transition costs of £0.8 million) was
£12.7 million (2004: £15.6 million, before de-merger costs of £2.1 million). The reduction in operating profit was mainly due to a decline in certain high contribution Document Exchange revenues, and a change in mix of Parcels revenue, both of which had a disproportionate profit impact due to the operational gearing within the business.
Non-recurring costs of £0.8 million have arisen in the period from the changes in the senior management team. It is expected that the total costs will be around £1 million, as previously announced.
Net finance costs of £1.7 million (2004: £2.4 million) were incurred, and the tax charge was £3.0 million (2004: £3.4 million), an effective rate of 29.4%
(2004: 30.6%).
The group generated £14.1 million of operating cash flow (2004: £20.1 million).
The comparative period benefited from a one off favourable net working capital movement of £3.8 million following the separation from Hays plc. This compares with a broadly constant working capital position in the current period, a trend which is more representative of the underlying cash flows of the business.
Net debt at the period end was £70.0 million (2004: £68.5 million), after spending £9.4 million on the share buy back (2004: £nil).
Dividend
The Board has declared an interim dividend of 4.2p per share, an increase of 5% over 2004 (2004: 4.0p). The dividend will be paid on 12 May 2006 to shareholders on the register on 18 April 2006, with an ex-dividend date of 12 April 2006. The Board anticipates that the final dividend for the year will be increased by at least the same proportion.
Strategy
The company has decided to concentrate its future business around a blue box network which is based upon the existing 4,500 exchanges and c10,000 additional destinations on the existing network. In addition, we will enhance the network through the creation of new drop locations where we believe we will see significant drop volumes in due course and the potential to be full DX members going forward. These will be termed “virtual exchanges”.
The key components of this strategy are:
* simplifying and improving the efficiency of the existing network in the
very short term
* one network business model with pre and post 9am next day delivery
* incentivised sales strategy focusing on the creation of potential new
blue box customers
* the company will not be a universal mail provider
* introduction of simple PC (customer) based bar code technology to
identify three mail groups:
o DX mail (mail sent by DX members to DX members)
o “DXable” mail (mail sent by DX members to DX members via the Royal Mail)
o Royal Mail (mail sent by DX members to non DX members)
* We see further business development including:
a) B2B mail close to but outside the current network, which can easily be
incorporated for next day delivery
b) C2B mail for specific customers, most likely Government agencies, from
known and new blue box locations
c) move to develop robust position with regard to delivery of the new Home
Information Packs and contracts for Land Registry
* a new simple approach for pricing which we believe will be easier to
understand and be more user friendly than Royal Mail’s “pricing in
proportion”
* redefined and streamlined internal processes and introduction of new
customer relationship management technology
* no DX branding on deliveries which are not next day
The initiatives outlined above have already started and will continue to be refined and implemented over the remainder of this financial year. We expect to update shareholders as the strategy progresses. The Board looks forward to working with the DX team to improve the profitability of the business by reducing our cost base, winning new profitable business whilst remaining the best quality low cost carrier of mail in the UK and Ireland.
Outlook
Performance for the full year continues to be in line with our trading update of
6 January 2006.
Volumes from existing services with current customers are expected to be broadly in line with the first half, with DX’s historic weighting of operating profit to the second half. The review of profitability on certain Parcels contracts is likely to lead to some reduction in costs and the termination of loss making contracts. Sales activity is now focused on generating new business that meets the delivery and profitability profiles defined by the network and by future network reviews.
Independent review report to DX Services plc
Introduction
We have been instructed by the company to review the financial information for the six months ended 31 December 2005 which comprises the consolidated income statement, consolidated balance sheet, a consolidated statement of recognised income and expense, a consolidated cash flow statement, comparative figures and associated notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information.
This report is made solely to the company in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.
Directors’ responsibilities
The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures are consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed.
International Financial Reporting Standards The next annual financial statements of the group will be prepared in accordance with International Financial Reporting Standards as adopted for use in the EU.
Accordingly, the interim report has been prepared in accordance with the recognition and measurement criteria of IFRS and the disclosure requirements of the Listing Rules. The accounting policies are consistent with those that the directors intend to use in the annual financial statements. There is, however, a possibility that the directors may determine that some changes to these policies are necessary when preparing the full annual financial statements for the first time in accordance with IFRSs as adopted for use in the EU.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and
Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 31 December 2005.
Deloitte & Touche LLP
Chartered Accountants
Reading
7 March 2006
